S&P 500 Futures drop as stimulus absence, anxiety over US inflation sour sentiment

• S&P 500 Futures fail to track Wall Street gains, US Treasury yields remain lacklustre.
• DXY consolidates the heaviest fall in 12 days amid a quiet session.
• Delay in Biden’s much-awaited aid package, wait for Fed’s preferred inflation gauge and mixed Evergrande news probe the bulls.
• US GDP, ECB favored market sentiment amid downbeat inflation expectations.

S&P 500 Futures consolidate weekly gains around record top, down 0.40% intraday near 4,570 during early Friday. The risk barometer portrays the cautious mood in the market following upbeat data backed by receding fears of the Fed tapering.

That being said, an absence of a deal on US President Joe Biden’s $1.75 trillion stimulus package weighs on the sentiment of late. As per the latest update, US House Speaker Nancy Pelosi conveyed her optimism towards the passage of infrastructure and social spending, climate bills during the phone call to postpone the vote on the infrastructure bill.

Elsewhere, Global rating giant S&P cites the risk of a default by the 33% of China’s property developers, including Evergrande. The news contrasts Evergrande’s second coupon payment, that too before time.

Against this backdrop, the US 10-year Treasury yields struggle for clear direction around 1.57% while the US Dollar Index (DXY) consolidates the heaviest fall in 12 days around 93.40 by the press time.

Previously, the softer prints of the US Q3 GDP, 2.0% versus 2.7% forecast and 6.7% prior, tamed the Fed tapering concerns and favored the risk-on mood. On the same line was the second daily fall in the US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.

Looking forward, investors will rethink the previous day’s moves amid a lack of major data/events and can consolidate the gains ahead of the US data. As per the market consensus, the Core Personal Consumption Expenditures (PCE) – Price Index for September is likely to ease to 0.2% from 0.3% prior on the MoM basis. This should ideally exert additional downside pressure on the reflation fears and challenge the tapering tantrums, helping the equities and commodities. However, the global central banks are less in the mood to accept that fact and hence the market fears may continue.

Read: Personal Consumption Expenditure Price Index September Preview: Transitory inflation becomes permanent